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Loretta agrees to lend Ted $500,000 to buy computers for his consulting firm. They agree to a nomina

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Loretta agrees to lend Ted $500,000 to buy computers for his consulting firm. They agree to a nomina

Loretta agrees to lend Ted $500,000 to buy computers for his consulting firm. They agree to a nominal interest rate of 8%. Both expect the inflation rate to be 2%.
(a)   Calculate the expected real interest rate.
(b)   If inflation turns out to be 3% over the life of the loan, what is the real interest rate? Who gains from unexpectedly high inflation, Loretta or Ted?
(c)   If inflation turns out to be 1% over the life of the loan, what is the real interest rate? Who gains from unexpectedly low inflation, Loretta or Ted?

Textbook

Macroeconomics

Edition: 8^th

Authors: Abel, Bernanke, Croushore

Read 637 times

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johnpaul92 Author

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8 years ago

This is incredible, wasn't expecting anyone to answer this one

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Jason D.

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3 years ago

amazing

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squirrelgirl123

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3 years ago

thanks

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Matthew D.

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3 years ago

awesome

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陳家莉

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3 years ago

thank you

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